Explanation

This risk was not identified in the FDD package. The franchise system has been contracting or stagnant over the last two years, not growing rapidly. A system that grows too fast can strain its resources, leading to inadequate support for franchisees. While this specific risk is not present, the lack of growth presents its own set of challenges regarding brand momentum and market presence, which should be considered.

Potential Mitigations

• Your business advisor can help you evaluate the pros and cons of joining a small, non-growing system versus a rapidly expanding one.
• Discussing the quality and availability of franchisor support with current franchisees is a prudent step in your due diligence.
• An accountant should still review the franchisor's financial statements to ensure they have adequate resources to support the existing system.

Explanation

This risk was not identified. The FDD package describes a Texas-style barbecue restaurant concept. This is a well-established and enduring segment of the restaurant industry in the United States, not a business model based on a new or fleeting trend. Therefore, the risk of the business being a short-lived fad appears to be low. Your success will likely depend more on operational execution and local market factors rather than the sustainability of the core concept.

Potential Mitigations

• A business advisor can help you research the local market competition for barbecue and casual dining to assess demand.
• You should evaluate the franchisor's approach to menu innovation and marketing to ensure it remains relevant and competitive.
• Consulting with your financial advisor can help you assess the long-term financial viability based on established industry trends.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives have been involved with the company and its predecessor since 2003 and 1994, respectively. This demonstrates significant experience within this specific brand and industry. While the system's performance raises other questions, a lack of management experience does not appear to be a primary risk based on the disclosures. An experienced management team is generally better equipped to navigate challenges.

Potential Mitigations

• You should still discuss the management team's vision and strategy for addressing the system's current challenges with your business advisor.
• Inquiring with current franchisees about their confidence in and relationship with the management team is a valuable due diligence step.
• Your attorney can help you understand how management's decisions have impacted the franchise system over time.

Explanation

This risk was not identified in the FDD. Item 1 and the accompanying documents do not indicate that a private equity firm or similar institutional investor owns HRS. The franchisor appears to be privately held by its founding management. This can sometimes mean a focus on long-term brand health over short-term returns, though it does not eliminate other financial or operational risks.

Potential Mitigations

• It is still wise to have your attorney investigate the corporate structure to confirm ownership and identify any influential stakeholders.
• Your business advisor can help you understand the potential advantages and disadvantages of dealing with a founder-led franchisor.
• Reviewing the franchisor's right to sell or assign the franchise system in the Franchise Agreement with your attorney remains an important step.

Explanation

This risk was not identified. The FDD does not disclose any current parent company for HRS. The franchisor entity, Hickory River Smokehouse, Inc., appears to be the primary operating and contracting entity, and it has provided its own audited financial statements as required. Therefore, the risk of a hidden parent company with undisclosed financial issues does not seem to be present.

Potential Mitigations

• Your attorney can perform a corporate records search to verify the franchisor's legal structure and confirm the absence of a parent company.
• A franchise accountant should analyze the provided financials to ensure they stand on their own without reliance on unstated parental support.
• You should still ask the franchisor directly about any affiliated companies that may impact the business, with guidance from your attorney.

Explanation

This risk was not identified in the FDD. Item 3 explicitly states, 'No litigation is required to be disclosed in this Item.' The absence of disclosed lawsuits against the franchisor by franchisees alleging fraud, or a high volume of franchisor-initiated litigation, is a positive indicator. However, this does not guarantee a dispute-free relationship. Standard contractual risks still apply.

Potential Mitigations

• Your attorney can still conduct independent public record searches for litigation involving the franchisor or its principals as a final check.
• It remains important to discuss franchisee satisfaction and any past disputes with current and former franchisees.
• A thorough review of the dispute resolution clauses in the Franchise Agreement with your attorney is still necessary.